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Social Security

Fix Social Security Now

By Judd Gregg and Alan Simpson
Tuesday, August 6, 1996; Page A15

Henry Aaron is a widely respected economist who has contributed greatly to the historical stability of the Social Security program. Nonetheless, we found his July 21 Outlook piece, "The Myths of the Social Security Crisis," to be a meager defense of an unsustainable status quo.

Aaron decries the "myths and misrepresentations" surrounding the Social Security debate, yet he begins by mischaracterizing that debate. It has never been about "whether to fix Social Security or to replace it with mandatory private savings accounts." Rather, personally owned savings accounts are frequently proposed as a necessary component of "fixing" Social Security because it has been clearly shown that traditional solutions simply will not maintain both the stability and equity of the Social Security system in light of the coming retirement needs of the baby boom generation. An examination of Aaron's "myths" only underscores the necessity of change.

Myth 1: "Social Security is in crisis." To debunk this "myth," Aaron states that "Social Security revenues now exceed outlays by more than $65 billion a year. This annual surplus is projected to double in the next decade."

Well, not exactly. Aaron's figure includes Social Security's disability program, which is left alone by most reform proposals dealing with baby boomer retirement. Focusing solely on the old age and survivors trust fund, the program most people think of as "Social Security," income will exceed revenues by $55 billion this year. Of that amount, $35.5 billion will derive from interest payments (from the general treasury!), leaving just a $20 billion surplus from the excess of payroll tax revenues over benefit payments. The cash-flow status of the Social Security retirement program is nowhere near as rosy as Aaron implies, and is buttressed significantly by infusions from general tax revenues.

Aaron's statement that "current financing is likely to cover currently promised benefits for 34 years" is misleading at best. Projections are that Social Security will be running annual deficits by the year 2012, meaning that benefits would then have to be trimmed or payroll taxes raised. The "financing" that Aaron states will sustain Social Security until 2029 is in the form of "IOUs" from the Treasury to Social Security, which by law are paid, both principal and interest, from general revenues. There is no getting around the fact that 2012, and not 2029, is the "date of reckoning."

It is supremely irresponsible to wait until 2012 to propose reforms. Retirement policy must be long-range policy. It is only fair to allow people time to adjust to whatever reform proposals are eventually adopted, and if we don't act swiftly the benefit cuts will be much more severe and the tax hikes much more steep – and that's no "myth."

Myth 2: "Social Security is part of the current deficit problem." On this point we agree with Aaron. Social Security is running a surplus right now and thus does not currently worsen the deficit. Other than to set up another straw-man myth to debunk, we are puzzled why he chose this as one of his "myths."

Myth 3: "The Social Security trust fund is a fiction. The money has all been spent and won't be there when we need it." Aaron debunks this myth in a strange way – he essentially agrees with it. "There is a real problem here," he states, and he spends his time explaining why the problem does, in fact, exist. All that we can add is that, if left unreformed, the magnitude of Social Security's call on the general treasury will be overwhelming and unsustainable. Aaron glosses over one key point: T-bills may represent "real assets" to the Social Security fund, but they represent money that is ultimately paid from general revenues. They only represent an "asset" to the extent that the federal government intends to tax future Americans in order to redeem them.

Myth 4: "Allowing people to invest privately what they now pay in Social Security taxes – that is, `privatizing' Social Security – would raise saving, boost economic growth, and increase retirement incomes." Aaron's thesis here seems to be only that there is no "magic bullet" that will make a simple transition from an essentially pay-as-you-go system financed by promises to tax future Americans into one in which Americans are genuinely saving for their own retirement. Unquestionably, if we as a nation are to pre-fund retirement benefits, and if we need to save more to achieve this, we (including government) must consume less, and there's no way around it. This is hardly, however, a persuasive argument in favor of leaving the status quo on its unsustainable course.

Personalized accounts remain attractive for a number of reasons. They would be real savings events to the people who own them, and unspent accounts could be passed on to heirs. As Aaron admits, today's trust fund surpluses are effectively being spent by today's Congresses on other government programs. With individualized accounts, this diversion could not occur.

Myth 5: "Social Security is the third rail of American politics – touch it and you die." Many of Aaron's comments here only reinforce our view that the American public is more ready to embrace Social Security reform than conventional wisdom would have us believe. It is notable that those in both parties who have talked honestly about the program's problems and advocated serious reform have withstood strong election challenges based upon scare tactics and demagoguery.

However, many politicians still believe the "myth" is true and are betting a good chunk of their political future on it. Republicans last year tried to honestly address a much more immediate, widely acknowledged "crisis" – Medicare's impending bankruptcy – and were confronted with an intense barrage of "Medagoguery" (to use The Post's term) [editorial, Sept. 15] and coordinated attacks led by the president himself. Serious issue discussion was quickly and cynically dismissed by those seeking political advantage.

A similar special-interest industry has grown up around Social Security, and undoubtedly stands ready to unleash its fury at the point when Congress is forced to deal with the program's problems. The Kerrey-Danforth Entitlement Reform Commission, on which we both served, received more than 300,000 postcards from senior citizens before it made one single proposal for reform!

On a substantive level, Aaron's discussion of this "myth" gets more into the philosophy of redistribution than a discussion of whether "third-rail" status still exists. We understand why Aaron may be wary of abandoning the New Deal redistributive principles upon which Social Security was built. But many reform proposals that include personal savings accounts do indeed provide for a "safety net" for the poorest Americans. The real discussion should be about which structure will best provide for the needs of most Americans in the 21st century, not simply an exercise in wistful nostalgia for the demographics of the New Deal years.

Social Security reform must occur, and sooner rather than later. As reform proponents, it is our obligation also to work to help frame a political environment under which responsible reform can occur. If the Social Security debate is to occur on an informed basis, some of the "myths" we should dispense with include many of Aaron's characterizations of the thinking of reform advocates.

Judd Gregg is a Republican senator from New Hampshire. Alan Simpson is a Republican senator from Wyoming.

© Copyright 1996 The Washington Post Company

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